In A Sea Of Money Printing, What Happened To All The Liquidity?
Volatility is depressed, micro dominates and as Goldman notes several of the key emerging themes of the last few years have lost their discovery value. There are many questions that investors should be asking as the second half of 2014 approaches (and the much hoped for 'recovery' picks up steam); but perhaps the most important one given the taper is "In a sea of liquidity, what happened to all the liquidity?" The supply of stock and volumes are down. Did you know Verizon’s current market cap is larger than Russia’s float?
Via Goldman Sachs,
Despite the market reaching all-time highs, the backdrop for trading activity remains depressed. US cash equity trading volumes have declined 50% since their Oct-2008 peaks, the VIX is back to sub-12 levels and the total supply of tradable stocks has declined by roughly 25% in the last decade (Exhibit 1). Layered on top of this is the impact of the well-publicized shift to passive investing where turnover is 10X lower than active management (Exhibit 1).
With the market awash in liquidity from central bank easing (and low rates) this frustration remains acute among investors. We note the following:
Outside of the United States, only four countries have more than 50 stocks with over a $10 bn market cap (Japan, the United Kingdom, China and France). The picture is similar when looking at trading volumes; just four countries have over 50 stocks that trade over $20 mn/day, which include Japan, China, the United Kingdom and Canada. See Exhibit 2.
Over two-thirds of the world’s market cap is in the top five markets. In order to reach the market cap of the United States, one would need to sum the next 2-14 countries (including those listed on the Euronext and OMX).
Only three of the countries included in the MSCI Emerging Market index have total market caps that are larger than Apple (the largest stock in the United States). Scorecard: Johnson & Johnson is larger than South Africa, Verizon is larger than Russia and Delta Airlines is larger than Greece. See Exhibit 4 for other comparisons.
And then there's Japan...